Rising July sales at TSMC <2330.TW> and UMC <2303.TW>, the world's two biggest contract chip makers, provided further evidence of reviving demand for computers and other consumer gadgets.

Both Taiwanese firms' sales were in line with market expectations as they flagged a stronger third quarter and raised capital spending forecasts for this year.

Analysts said sector leader TSMC used advanced process technology to churn out more chips for its customers as a new crop of laptops and mobile phones requiring powerful chips hit store shelves.

Taiwan Semiconductor Manufacturing Co Ltd (TSMC) said on Monday it had unconsolidated sales of T$30.28 billion ($923 million) last month, flat from a year ago but the largest monthly amount in nearly one year.

TSMC earns nearly half of its revenue from chips for communications products such as cellphones and counts Texas Instruments and Nvidia among its major clients.

On the same day after the Taipei stock market closed, United Microelectronics Corp (UMC) said its July sales reached T$8.81 billion, their highest since November, 2007.

The gap (between TSMC and UMC) still exists in terms of technology and economic scale, said Kevin Chung, a manager at Taiwan's Jih Sun Investment Consulting.

With good sales growth momentum in the third quarter, TSMC shares might stay high.

TSMC's Taipei-listed shares rose 1.8 percent on Monday, while UMC shares lost 0.4 percent. TSMC has advanced about 30 percent so far this year, while the main TAIEX <.TWII> gained 50 percent during the same period.

After a strong third quarter, however, analysts expected TSMC's sales to fall about 10 percent sequentially in the fourth.

In the longer term, TSMC has said it would allocate more for research and development amid the chip sector's recovery, which analysts say would help it further widen its customer base.

Since the cost of chip manufacturing has risen, many major chipmakers in the U.S. and Japan have outsourced production, good news for chip foundries.

Integrated Device Technology said last week it would transfer manufacturing to TSMC as the U.S.-based chipmaker plans to shut down one of its factories.

Sales of chips made by mainstream 65-nanometer technology accounted for 28 percent of TSMC's total revenue in April-June, and 12 percent of UMC's revenue in the same period.

In the first seven months of the year, TSMC's consolidated sales were T$144.9 billion, down 30 percent from a year ago. UMC's sales reached T$42.3 billion in January-July, down 27 percent from a year earlier.

(US$1=T$32.8)

(Reporting by Baker Li, Editing by Jonathan Hopfner)

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